CULLEN/FROST BANKERS, INC. [CFR] Filings

10-Q 1 cfr-20240930.htm 10-Q cfr-20240930

United States

Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended: September 30, 2024

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from ________________ to ________________

Commission file number: 001-13221

Cullen/Frost Bankers, Inc.

(Exact name of registrant as specified in its charter)

Texas

74-1751768

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

111 W. Houston Street,

San Antonio,

Texas

78205

(Address of principal executive offices)

(Zip code)


	(210)	220-4011
(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on
which registered

Common Stock, $.01 Par Value

CFR

New York Stock Exchange

Depositary Shares, each representing a 1/40th interest in a share of 4.450% Non-Cumulative Perpetual Preferred Stock, Series B

CFR.PrB

New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of October 28, 2024, there were 64,131,862 shares of the registrant’s Common Stock, $.01 par value, outstanding.

Cullen/Frost Bankers, Inc.

Quarterly Report on Form 10-Q

September 30, 2024

Table of Contents


		Page
Part I - Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income (Loss)	5
	Consolidated Statements of Changes in Shareholders’ Equity	6
	Consolidated Statements of Cash Flows	8
	Notes to Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63
Item 4.	Controls and Procedures	63

Part II - Other Information
Item 1.	Legal Proceedings	64
Item 1A.	Risk Factors	64
Item 2.	Unregistered Sales of Equity Securities , Use of Proceeds, and Issuer Purchases of Equity Securities	64
Item 3.	Defaults Upon Senior Securities	64
Item 4.	Mine Safety Disclosures	64
Item 5.	Other Information	64
Item 6.	Exhibits	65

Signatures		66

Table of Contents

Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Cullen/Frost Bankers, Inc.

Consolidated Balance Sheets

(Dollars in thousands, except per share amounts)


	September 30, 2024		December 31, 2023
Assets:
Cash and due from banks	$	751,174	$	617,569
Interest-bearing deposits	8,436,550		7,985,057
Federal funds sold	1,000		—
Resell agreements	9,650		84,650
Total cash and cash equivalents	9,198,374		8,687,276
Securities held to maturity, net of allowance for credit losses of $310 at both September 30, 2024 and December 31, 2023	3,569,718		3,619,428
Securities available for sale, at estimated fair value	15,320,043		16,578,371
Trading account securities	32,353		31,717
Loans, net of unearned discounts	20,054,863		18,824,251
Less: Allowance for credit losses on loans	(263,129)		(245,996)
Net loans	19,791,734		18,578,255
Premises and equipment, net	1,229,221		1,190,033
Accrued interest receivable and other assets	1,866,650		2,159,958
Total assets	$	51,008,093	$	50,845,038

Liabilities:
Deposits:
Non-interest-bearing demand deposits	$	13,953,070	$	14,926,094
Interest-bearing deposits	27,767,551		26,994,474
Total deposits	41,720,621		41,920,568
Federal funds purchased	22,375		14,200
Repurchase agreements	4,014,037		4,127,188
Junior subordinated deferrable interest debentures, net of unamortized issuance costs	123,170		123,127
Subordinated notes, net of unamortized issuance costs	99,609		99,491
Accrued interest payable and other liabilities	893,075		844,017
Total liabilities	46,872,887		47,128,591

Shareholders’ Equity:
Preferred stock, par value $0.01 per share; 10,000,000 shares authorized; 150,000 Series B shares ($1,000 liquidation preference) issued at September 30, 2024 and December 31, 2023	145,452		145,452
Common stock, par value $0.01 per share; 210,000,000 shares authorized; 64,404,582 shares issued at both September 30, 2024 and December 31, 2023	644		644
Additional paid-in capital	1,065,829		1,055,809
Retained earnings	3,889,387		3,657,688
Accumulated other comprehensive income (loss), net of tax	(915,433)		(1,119,219)
Treasury stock, at cost; 473,378 shares at September 30, 2024 and 219,295 at December 31, 2023	(50,673)		(23,927)
Total shareholders’ equity	4,135,206		3,716,447
Total liabilities and shareholders’ equity	$	51,008,093	$	50,845,038

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Interest income:
Loans, including fees	$	357,122	$	307,035	$	1,031,438	$	867,302
Securities:
Taxable	99,561		103,875		296,635		303,610
Tax-exempt	54,618		56,918		164,456		184,189
Interest-bearing deposits	96,215		91,904		294,215		278,897
Federal funds sold	63		183		223		1,246
Resell agreements	580		1,197		2,977		3,391
Total interest income	608,159		561,112		1,789,944		1,638,635
Interest expense:
Deposits	164,328		138,779		479,222		357,034
Federal funds purchased	271		288		1,262		1,283
Repurchase agreements	35,868		33,195		108,118		99,960
Junior subordinated deferrable interest debentures	2,197		2,260		6,756		6,354
Subordinated notes	1,164		1,164		3,492		3,492
Total interest expense	203,828		175,686		598,850		468,123
Net interest income	404,331		385,426		1,191,094		1,170,512
Credit loss expense	19,386		11,185		48,823		30,190
Net interest income after credit loss expense	384,945		374,241		1,142,271		1,140,322
Non-interest income:
Trust and investment management fees	41,016		37,616		121,505		113,152
Service charges on deposit accounts	27,412		23,603		78,321		68,969
Insurance commissions and fees	14,839		13,636		47,054		45,528
Interchange and card transaction fees	5,428		4,672		15,253		14,811
Other charges, commissions, and fees	13,060		13,128		38,140		36,922
Net gain (loss) on securities transactions	16		12		16		66
Other	11,936		13,331		35,985		35,343
Total non-interest income	113,707		105,998		336,274		314,791
Non-interest expense:
Salaries and wages	156,637		137,562		455,874		401,102
Employee benefits	29,060		26,527		93,832		87,241
Net occupancy	32,497		31,581		96,649		93,644
Technology, furniture, and equipment	37,766		35,278		108,712		100,802
Deposit insurance	7,238		6,033		30,345		18,480
Other	60,212		56,275		181,179		162,171
Total non-interest expense	323,410		293,256		966,591		863,440
Income before income taxes	175,242		186,983		511,954		591,673
Income taxes	28,741		31,332		84,264		96,251
Net income	146,501		155,651		427,690		495,422
Preferred stock dividends	1,668		1,668		5,006		5,006
Net income available to common shareholders	$	144,833	$	153,983	$	422,684	$	490,416

Earnings per common share:
Basic	$	2.24	$	2.38	$	6.52	$	7.56
Diluted	2.24		2.38		6.51		7.54

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Comprehensive Income (Loss)

(Dollars in thousands)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net income	$	146,501	$	155,651	$	427,690	$	495,422
Other comprehensive income (loss), before tax:
Securities available for sale and transferred securities:
Change in net unrealized gain/loss during the period	498,371		(600,441)		257,185		(547,035)
Change in net unrealized gain on securities transferred to held to maturity	(150)		(164)		(466)		(486)
Reclassification adjustment for net (gains) losses included in net income	(16)		(12)		(16)		(66)
Total securities available for sale and transferred securities	498,205		(600,617)		256,703		(547,587)
Defined-benefit post-retirement benefit plans:

Reclassification adjustment for net amortization of actuarial gain/loss included in net income as a component of net periodic cost (benefit)	418		869		1,255		2,609
Total defined-benefit post-retirement benefit plans	418		869		1,255		2,609
Other comprehensive income (loss), before tax	498,623		(599,748)		257,958		(544,978)
Deferred tax expense (benefit)	104,712		(125,948)		54,172		(114,445)
Other comprehensive income (loss), net of tax	393,911		(473,800)		203,786		(430,533)
Comprehensive income (loss)	$	540,412	$	(318,149)	$	631,476	$	64,889

See accompanying Notes to Consolidated Financial Statements.

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share amounts)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total
Three months ended:
September 30, 2024
Balance at beginning of period	$	145,452	$	644	$	1,064,070	$	3,810,008	$	(1,309,344)	$	(45,025)	$	3,665,805
Net income	—		—		—		146,501		—		—		146,501
Other comprehensive income (loss), net of tax	—		—		—		—		393,911		—		393,911
Stock option exercises/stock unit conversions (131,465 shares)	—		—		—		(4,124)		—		14,399		10,275
Stock-based compensation expense recognized in earnings	—		—		1,759		—		—		—		1,759
Purchase of treasury stock (188,889 shares)	—		—		—		—		—		(20,047)		(20,047)

Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)	—		—		—		(1,668)		—		—		(1,668)
Cash dividends – common stock ($0.95 per share)	—		—		—		(61,330)		—		—		(61,330)
Balance at end of period	$	145,452	$	644	$	1,065,829	$	3,889,387	$	(915,433)	$	(50,673)	$	4,135,206

September 30, 2023
Balance at beginning of period	$	145,452	$	644	$	1,040,754	$	3,532,542	$	(1,305,027)	$	(27,623)	$	3,386,742
Net income	—		—		—		155,651		—		—		155,651
Other comprehensive income (loss), net of tax	—		—		—		—		(473,800)		—		(473,800)
Stock option exercises/stock unit conversions (8,483 shares)	—		—		—		(217)		—		813		596
Stock-based compensation expense recognized in earnings	—		—		3,111		—		—		—		3,111
Purchase of treasury stock (111,956 shares)	—		—		—		—		—		(11,372)		(11,372)

Cash dividends – Series B preferred stock (approximately $11.13 per share which is equivalent to approximately $0.28 per depositary share)	—		—		—		(1,668)		—		—		(1,668)
Cash dividends – common stock ($0.92 per share)	—		—		—		(59,509)		—		—		(59,509)
Balance at end of period	$	145,452	$	644	$	1,043,865	$	3,626,799	$	(1,778,827)	$	(38,182)	$	2,999,751

See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

(Dollars in thousands, except per share amounts)


	Preferred Stock		Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Tax		Treasury Stock		Total
Nine months ended:
September 30, 2024
Balance at beginning of period	$	145,452	$	644	$	1,055,809	$	3,657,688	$	(1,119,219)	$	(23,927)	$	3,716,447
Net income	—		—		—		427,690		—		—		427,690
Other comprehensive income (loss), net of tax	—		—		—		—		203,786		—		203,786
Stock option exercises/stock unit conversions (254,093 shares)	—		—		—		(10,043)		—		25,527		15,484
Stock-based compensation expense recognized in earnings	—		—		10,020		—		—		—		10,020
Purchase of treasury stock (508,176 shares)	—		—		—		—		—		(52,273)		(52,273)

Cash dividends – Series B preferred stock (approximately $33.38 per share which is equivalent to approximately $0.83 per depositary share)	—		—		—		(5,006)		—		—		(5,006)
Cash dividends – common stock ($2.79 per share)	—		—		—		(180,942)		—		—		(180,942)
Balance at end of period	$	145,452	$	644	$	1,065,829	$	3,889,387	$	(915,433)	$	(50,673)	$	4,135,206

September 30, 2023
Balance at beginning of period	$	145,452	$	643	$	1,029,756	$	3,309,671	$	(1,348,294)	$	—	$	3,137,228
Net income	—		—		—		495,422		—		—		495,422
Other comprehensive income (loss), net of tax	—		—		—		—		(430,533)		—		(430,533)
Stock option exercises/stock unit conversions (72,496 shares)	—		1		1,463		(736)		—		2,314		3,042
Stock-based compensation expense recognized in earnings	—		—		12,646		—		—		—		12,646
Purchase of treasury stock (410,288 shares)	—		—		—		—		—		(40,496)		(40,496)

Cash dividends – Series B preferred stock (approximately $33.38 per share which is equivalent to approximately $0.83 per depositary share)	—		—		—		(5,006)		—		—		(5,006)
Cash dividends – common stock ($2.66 per share)	—		—		—		(172,552)		—		—		(172,552)
Balance at end of period	$	145,452	$	644	$	1,043,865	$	3,626,799	$	(1,778,827)	$	(38,182)	$	2,999,751

See accompanying Notes to Consolidated Financial Statements

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Cullen/Frost Bankers, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)


	Nine Months Ended September 30,
	2024		2023
Operating Activities:
Net income	$	427,690	$	495,422
Adjustments to reconcile net income to net cash from operating activities:
Credit loss expense	48,823		30,190
Deferred tax expense (benefit)	(11,165)		(3,047)
Accretion of loan discounts	(16,265)		(13,074)
Securities premium amortization (discount accretion), net	35,577		50,614
Net (gain) loss on securities transactions	(16)		(66)
Depreciation and amortization	61,413		56,257
Net (gain) loss on sale/write-down of assets/foreclosed assets	(343)		(194)
Stock-based compensation	10,020		12,646
Net tax benefit from stock-based compensation	1,280		583
Earnings on life insurance policies	(2,785)		(2,164)
Net change in:
Trading account securities	(620)		(1,020)
Lease right-of-use assets	18,891		17,347
Accrued interest receivable and other assets	322,645		55,440
Accrued interest payable and other liabilities	30,085		(137,088)
Net cash from operating activities	925,230		561,846
Investing Activities:
Securities held to maturity:
Purchases	—		(1,147,624)
Maturities, calls and principal repayments	46,757		154,465
Securities available for sale:
Purchases	(7,435,990)		(13,445,382)
Sales	60,591		1,904,067
Maturities, calls and principal repayments	8,773,027		13,073,663
Proceeds from sale of loans	1,191		2,215
Net change in loans	(1,244,886)		(1,257,033)
Net cash paid in insurance agency asset acquisition	(703)		—
Benefits received on life insurance policies	1,063		1,000
Proceeds from sales of premises and equipment	17		1,282
Purchases of premises and equipment	(90,129)		(118,062)
Proceeds from sales of repossessed properties	2,590		583
Net cash from investing activities	113,528		(830,826)
Financing Activities:
Net change in deposits	(199,947)		(2,961,961)
Net change in short-term borrowings	(104,976)		(964,096)
Proceeds from stock option exercises	15,484		3,042
Purchase of treasury stock	(52,273)		(40,496)
Cash dividends paid on preferred stock	(5,006)		(5,006)
Cash dividends paid on common stock	(180,942)		(172,552)
Net cash from financing activities	(527,660)		(4,141,069)
Net change in cash and cash equivalents	511,098		(4,410,049)
Cash and cash equivalents at beginning of period	8,687,276		12,028,132
Cash and cash equivalents at end of period	$	9,198,374	$	7,618,083

See accompanying Notes to Consolidated Financial Statements.

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Notes to Consolidated Financial Statements

(Table amounts in thousands, except for share and per share amounts)

Note 1 - Significant Accounting Policies

Nature of Operations. Cullen/Frost Bankers, Inc. (“Cullen/Frost”) is a financial holding company and a bank holding company headquartered in San Antonio, Texas that provides, through its subsidiaries, a broad array of products and services throughout numerous Texas markets. The terms “Cullen/Frost,” “the Corporation,” “we,” “us” and “our” mean Cullen/Frost Bankers, Inc., and its subsidiaries, when appropriate. In addition to general commercial and consumer banking, other products and services offered include trust and investment management, insurance, brokerage, mutual funds, leasing, treasury management, capital markets advisory and item processing.

Basis of Presentation. The consolidated financial statements in this Quarterly Report on Form 10-Q include the accounts of Cullen/Frost and all other entities in which Cullen/Frost has a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and financial reporting policies we follow conform, in all material respects, to accounting principles generally accepted in the United States and to general practices within the financial services industry.

The consolidated financial statements in this Quarterly Report on Form 10-Q have not been audited by an independent registered public accounting firm, but in the opinion of management, reflect all adjustments necessary for a fair presentation of our financial position and results of operations. All such adjustments were of a normal and recurring nature. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q adopted by the Securities and Exchange Commission (“SEC”). Accordingly, the financial statements do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with our consolidated financial statements, and notes thereto, for the year ended December 31, 2023, included in our Annual Report on Form 10-K filed with the SEC on February 6, 2024 (the “2023 Form 10-K”). Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for a full year or any future period.

Use of Estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. The allowance for loan losses and the fair values of financial instruments and the status of contingencies are particularly subject to change.

Cash Flow Reporting. Additional cash flow information was as follows:


	Nine Months Ended September 30,
	2024		2023
Cash paid for interest	$	593,610	$	435,099
Cash paid for income taxes	96,500		97,000
Significant non-cash transactions:
Unsettled securities transactions	84,779		276
Loans foreclosed and transferred to other real estate owned and foreclosed assets	2,633		—

Right-of-use lease assets obtained in exchange for lessee operating lease liabilities	13,982		9,964

Accounting Changes, Reclassifications and Restatements. Certain items in prior financial statements have been reclassified to conform to the current presentation.

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Note 2 - Securities

Securities - Held to Maturity. A summary of the amortized cost, fair value and allowance for credit losses related to securities held to maturity as of September 30, 2024 and December 31, 2023, is presented below.


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Allowance for Credit Losses		Net Carrying Amount
September 30, 2024

Residential mortgage-backed securities	$	1,211,798	$	7,380	$	39,632	$	1,179,546	$	—	$	1,211,798
States and political subdivisions	2,356,730		31,823		71,318		2,317,235		(310)		2,356,420
Other	1,500		—		10		1,490		—		1,500
Total	$	3,570,028	$	39,203	$	110,960	$	3,498,271	$	(310)	$	3,569,718
December 31, 2023

Residential mortgage-backed securities	$	1,250,431	$	76	$	54,175	$	1,196,332	$	—	$	1,250,431
States and political subdivisions	2,367,807		42,990		76,540		2,334,257		(310)		2,367,497
Other	1,500		—		45		1,455		—		1,500
Total	$	3,619,738	$	43,066	$	130,760	$	3,532,044	$	(310)	$	3,619,428

All mortgage-backed securities included in the above table were issued by U.S. government agencies and corporations. The carrying value of held-to-maturity securities pledged to secure public funds, trust deposits, repurchase agreements and for other purposes, as required or permitted by law was $1.0 billion at both September 30, 2024 and December 31, 2023, respectively. Accrued interest receivable on held-to-maturity securities totaled $20.2 million and $40.9 million at September 30, 2024 and December 31, 2023, respectively and is included in accrued interest receivable and other assets in the accompanying consolidated balance sheets.

From time to time, we have reclassified certain securities from available for sale to held to maturity. The net unamortized, unrealized gain remaining on transferred securities included in accumulated other comprehensive income in the accompanying balance sheet totaled $685 thousand ($541 thousand, net of tax) at September 30, 2024 and $1.2 million ($909 thousand, net of tax) at December 31, 2023. This amount will be amortized out of accumulated other comprehensive income over the remaining life of the underlying securities as an adjustment of the yield on those securities.

The following table summarizes Moody's and/or Standard & Poor's bond ratings for our portfolio of held-to-maturity securities issued by States and political subdivisions and other securities as of September 30, 2024 and December 31, 2023:


	States and Political Subdivisions
	Not Guaranteed or Pre-Refunded		Guaranteed by the Texas PSF		Guaranteed by Third Party		Pre-Refunded		Total		Other Securities
September 30, 2024
Aaa/AAA	$	301,414	$	1,522,654	$	13,643	$	14,528	$	1,852,239	$	—
Aa/AA	498,379		—		6,112		—		504,491		—

Not rated	—		—		—		—		—		1,500
Total	$	799,793	$	1,522,654	$	19,755	$	14,528	$	2,356,730	$	1,500
December 31, 2023
Aaa/AAA	$	301,721	$	1,541,913	$	13,651	$	1,401	$	1,858,686	$	—
Aa/AA	503,016		—		6,105		—		509,121		—

Not rated	—		—		—		—		—		1,500
Total	$	804,737	$	1,541,913	$	19,756	$	1,401	$	2,367,807	$	1,500

Table of Contents

The following table details activity in the allowance for credit losses on held-to-maturity securities during the three and nine months ended September 30, 2024 and 2023.


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Beginning balance	$	310	$	267	$	310	$	158

CULLEN/FROST BANKERS, INC. [CFR] Filings

CULLEN/FROST BANKERS, INC. [CFR-PB] Filings